Mandatory Inclusionary Zoning In Atlanta: The Legal Environment

In the increasingly complex legal environment featuring conflicts between state- and city-level policies — many of which are enacted specifically to circumvent the intended operation of one another — it is more important than ever to understand the circumstances in which any advocate of affordable housing interventions must operate. Affordable housing, also known as ‘workforce housing,’ is intended to cost no more than 30% of the net income of those making roughly 60% of the Area Median Income (AMI), and may be pursued through a number of policy mechanisms, each with their own legal implications. One of these approaches is mandatory inclusionary zoning.

Within the broad category of mandatory inclusionary zoning (IZ) approaches, there are three main types of instruments: unit set-asides, monetary-or-other compensation, and rent control. This post regards rent control as a mandatory inclusionary zoning policy instrument, although there is an ongoing debate on its inclusion in that category, most recently addressed in Palmer v City of Los Angeles in 2009, which held that mandatory inclusionary zoning was indeed a form of rent control. While rent control is often criticized as an affordable house method for its tendency to drive down housing quantity and quality over the long term, temporary rent control measures can be an extremely effective way to slightly cool the overheated markets of rapidly-gentrifying areas and give residents a chance to adjust while other affordable housing measures attempt to catch up. However, Georgia law OCGA § 44-7-19 makes rent control illegal statewide, making it ineligible for consideration in Atlanta.

There are three broad types of legal challenges to mainline mandatory inclusionary zoning measures: equal protection, due process, and takings. Of these, equal protection claims are the easiest to defeat. They assert that by forcing developers to undertake certain actions (paying money, building units, etc), they are not being treated equitably under the law. However, real estate developers are not a protected class, and therefore are subject to the highly deferential ‘reasonableness’ review, wherein courts accept that as long as the government’s need is reasonable, the unequal treatment is justified. Also relatively easy to refute are due process claims, which assert that a given law’s affordable housing requirements constitute unreasonable interference with a developer’s business activities. In the broadest sense, this argument was struck down by the original zoning case Euclidin 1926, wherein land-use regulation was decided to be an appropriate use of the police power. In the face of subsequent due process claims, cases such as 1988’s Pennell, in which “the United States Supreme Court held that protecting consumer welfare is a legitimate goal of price regulations, and that preventing unreasonable increases in housing prices is a legitimate governmental interest” have further supported the legitimacy of such regulations from a due process perspective. This is possible due to the deferential stance the courts take to legislatively-enacted requirements and the correspondingly low level of scrutiny employed, which accepts affordable housing as a public good the government is authorized to pursue. Indeed, it has been successfully argued that exclusionary zoning — zoning to discourage or prevent residence in an area by lower-income persons — is itself a violation of those citizens’ due process protections, as seen most famously in the Mt. Laurel cases.

By contrast, the most extensive — and contentious — strain of zoning challenges (and therefore inclusionary zoning challenges) is takings jurisprudence. Takings concerns are fundamentally different from those of due process or equal protection because they do not assert that the government has engaged in an inherently inappropriate action, but rather that it has failed to provide the Fifth-Amendment-mandated just compensation for an otherwise entirely legal action. For several decades, the test for takings claims in cases of government regulation of property was 1980’s Agins v. City of Tiburon “substantially advances” test — namely, that a regulation was not a taking if it substantially advances a legitimate government interest (similar to the two relatively-light standards used for equal-protection and due-process claims). This strain of thought was employed, or at least referenced, in a number of subsequent landmark takings cases — including Nollan(the “essential nexus” standard), Dolan ( “rough proportionality”), Penn Central (the “balancing” test), Lucas(the “total takings” test), and Loretto(the “permanent physical invasion” test) — to determine elements of a takings test in various circumstances. The “substantially advances” test was explicitly rejected for being suitable for due process concerns — not takings concerns — in 2005’s Lingle v Chevron, in which an entirely new schema is laid out. In it, the Court divides takings into per se takings (such as Lucas and Loretto), regulatory takings (handled using the Penn Central method), and the “special context” of land-use exactions (a condition placed on development to attempt to mitigate subsequent impacts of that development).

This final “special context” of exactions functionally covers all mandatory inclusionary zoning, thanks to the 2013 expansion of what constitutes an exaction by Koontz v. St. John’s River Water Management. Previously, exactions were either real property or the rights thereto (such as to refuse access), which mandatory set-asides — but not fees-in-lieu or other monetary mandatory inclusionary zoning methods — would fall under. The Koontz decision expanded the definition of exactions to include money as well as real property, and in doing so put fees-in-lieu, housing linkage fees, and similar mechanisms under sharply increased Constitutional scrutiny. The exact implications of the Koontz decision are still a matter of active debate — there are some readings that indicate it could be used to threaten the very legitimacy of property taxes — but it clearly raises the importance of administrative versus legislative takings.

This ambiguity — if legislative exactions (including mandatory IZ) are takings and are subject to the same strict scrutiny as administrative exactions are — is shaping up to be the next sea change in exactions law. At present, the matter is still under active consideration with the U.S. Supreme Court, most lately in the form of California Building Industry Association v. City of San Jose, which was rescheduled three times before finally receiving a denial of certiorari by Justice Thomas in late February 2016. In it, he expressed concern that “property owners and local governments are left uncertain about what legal standard governs legislative ordinances and whether cities can legislatively impose exactions that would not pass muster if done administratively.” There is a strong Constitutional argument that legislative exactions are inherently more defensible for being equally applied and put into place by the duly elected agents of the citizens’ collective will, in contrast to ‘ad-hoc’ administrative exactions which deserve greater scrutiny for their potential to single individual property owners out for abuse. This point was recently argued in San Remo Hotel v San Francisco, in which the Supreme Court of California asserted that any “city council that charged extortionate fees for all property development, unjustifiable by mitigation needs, would likely face widespread and well-financed opposition in the next election. Ad hoc individual monetary exactions deserve special judicial scrutiny mainly because, affecting fewer citizens and evading systematic assessment, they are more likely to escape such political controls.”

Currently, state-level case law is split. Until a Supreme Court decision is made, it seems that mandatory IZ policies, even if legislatively enacted, would not be practical to pursue in the Atlanta context. The San Jose case affirms for California that mandatory inclusionary zoning is a) not a taking, b) not rent control, and even adds that c) legislatively-enacted exactions are explicitly not subject to the Nollan/Dolan test. However, traditional mandatory zoning policies in Atlanta or Georgia will likely be challenged in the same way as the San Jose case, with a much less sympathetic State Supreme Court and a US Supreme Court that appears to be extremely open to a sufficiently ripe case on this issue. Even housing linkage fees, which have been both effective and politically palatable elsewhere, and which could potentially be supported as a legitimate use of the police power to offset the negative effects of development (discussed in Parking Assn. of Georgia v City of Atlanta), are likely to be successfully challenged as an illegal expression of impact fees. Given the presence of Georgia’s Development Impact Fees Act, which requires that all such fees be used for capital improvements to a specified range of public facilities and moreover must be used to maintain the current level of service, not increase it (OCGA. § 36-71), impact-fee mechanisms would likely be overturned as unconstitutional for attempting to improve on the current state of affordable housing provision, as both an unacceptable type of and level of service improvement. Furthermore, as Georgia’s State Constitution requires a “literal balancing test” for all land-use regulations to weigh the public benefit against private loss, any mandatory IZ effort would have to offer “substantial cost offsets” (making it functionally a voluntary ordinance) and would essentially rule out the possibility of mandatory set-asides. Therefore, given the current state of the law, it seems prudent to pursue other paths to affordability for Atlantans than any of these mandatory inclusionary zoning approaches.